People's Democracy

(Weekly Organ of the Communist Party of India (Marxist)


No. 27

July 04, 2010

Petro Products Price Hike – Deora’s Gospel of Untruth

Dipankar Mukherjee


THE ministry of petroleum and natural gas, governmnet of India has given an advertisement in the newspapers soliciting support of the people for the price hike of petrol, diesel, LPG and kerosene.  It is a document of deceit and deception published with public money to befool the people.  It says “80 per cent of the country’s requirement of products is met by imports.  This naturally impacts prices due to volatility in international oil markets”.


·        Crude oil is refined in the refineries to produce petroleum products like petrol, diesel etc. before marketing. India imports crude oil which is about 75 to 80 per cent of its requirements. However, India is more than self sufficient in oil refining and produces more products than the domestic requirements.  In the year 2009 – 2010 (April-December) it has exported 28 million tonnes of petroleum products against an import of 10 million tonnes.


·        As for the volatility in the international oil market, when the UPA-II government came to power in May 2009, international crude price was 70 dollar per barrel ie Rs 21.43 per litre (1 dollar = Rs 49). Today it is 77 dollar per barrel which means Rs 22.13 per litre (1dollar = Rs 46.22).  One barrel roughly is 160 litres. So the international crude price has risen by 70 paise per litre so far.  Is it too volatile to justify a price hike of Rs 6.44 per litre on petrol, Rs 4.55 per litre on diesel within the last four months, and Rs 3 per litre on kerosene and Rs 35 on domestic LPG now?


Obviously international price has nothing to do to the price hike of petroleum products since the last budget in February 2010. 





The petroleum minister Murali Deora justifies the price rise in his interview in The Times of India on June 26, 2010 - “The government has acted in the larger national interest of saving PSU oil companies, which are Navaratnas and Maharatnas, from bankruptcy and safeguarding consumer interests.” Is it so?  Let us see what his ministry says in its annual report of 2009-10 on Indian Oil Corporation (IOC), the major public sector Oil Marketing Company (OMC):


          During 2008-09, IOC posted a net profit of Rs 2,950 crores on an unprecedented turnover of Rs  2,85,337 crores that too after holding the price line for the four major products – petrol, diesel, PDS kerosene and LPG for domestic use.  IOC is also the first and the highest ranked Indian company in the Fortune `Global 500’, placed at 116th position by sales in 2008.  It is the 18th largest petroleum company in the world.  The profit (after tax) for the year 2009-10 (upto December 2009) is Rs 4663.78 crores, whereas the turnover for the said period is Rs 208289.46 crores”.


          Hold the breath! As per the audited financial results for the year ending March 31, 2010  IOC’s net profit has been shown as Rs10,998 crores with a reserve and surplus of Rs 49,472 crores.


*    In 2009-10, IOC has paid Rs 26,050 crores as excise duty and Rs 4049 crores on other taxes. In addition, IOC has paid the government a dividend of Rs 656 crores in 2007-08, Rs 910 crores in 2008-09 and for the year 2009-10 it has to pay not less than Rs 3000 crores as dividend.


*    Other two marketing companies HPC and BPC have earned profits of Rs 544 crore and Rs 834 crores during April-December, 2009.


      And still the minister gets the perverse pleasure of calling these as bankrupt.  It is actually the bankruptcy of the government which denigrates its own companies in such derogatory terms only to fulfill its hidden agenda. Interestingly, the same bankrupt companies have been asked to contribute Rs 250 crores to Rajiv Gandhi Petroleum Institute in Rai Bareilly!


·        In  the annual report, it also says that  IOC  is having major ongoing projects valued at about Rs 65,000 crores and during the year has signed a MOU with Nuclear Power Corporation of India for joint venture in nuclear power generation which is a capital intensive industry with low assured return. A bankrupt company, Mr Deora?





But then, what about under recovery - a fancy term being used for the last few years which has no place in balance sheet of any company.  The government, backed by the corporate media has been successful in its game of deceit and deception in misleading people to believe that the “so called under recoveries” are actually the losses, incurred by the OMCS.


Till the nationalisation of foreign oil companies i.e. Burma Shell, Caltex, and Esso, the pricing of petroleum products was done based on the international prices of the products. This was known as import parity pricing system. In 1976, import pricing system was discontinued and Administrative Pricing Mechanism (APM) was introduced as with continued increase in the domestic refining capacity, the share of imported products was coming down. As per APM the actual cost of crude and refining cost of crude were assessed and a reasonable profit margin was ensured to the companies before fixing the price of products. Entry of private investors both domestic and foreign after 1991 led to intensive pressure on successive governments to dismantle APM which was evolved to control the pricing of petroleum products. In 2002, APM was dismantled and import parity was again resorted to for both crude and petroleum products.  Import parity price means that the price of the petroleum products within the country would be fixed at par with global prices irrespective of the actual exploration and refining cost within the country. Today, even when we produce cheaper crude oil in ONGC and Oil India and we refine it at much lesser cost than the global market in our refineries, both public and private, we have to still pay at par with global price irrespective of actual production and refining cost. Under recovery is the difference between the import parity price and the retail price of petrol, diesel, LPG and kerosene, before deregulation. Under recovery is a notional loss based on assumption and not actual loss in real terms.


Because of the pressures of the Left parties, APM could not be dismantled for petrol, diesel, LPG and kerosene but the private sector especially the domestic refiners like Reliance and Essar were pressurising the government to dispense with the government control on these products so that they can enter the market after deregulation.


Under the cover of under recoveries, we are back to the decontrolled pricing regime based on import parity, when foreign oil companies were operating in the country. Burma Shell, Caltex and ESSO might have gone. But their pricing regime is back.





It is an insult to self reliance achieved in petroleum sector, when the government advertisement tries to compare the prices of LPG and Kerosene selectively with neighbouring countries like Nepal and Bangladesh.  Instead, it should compare the taxing pattern of petrol and diesel with some of the developing countries.



Item           Countries                                       % of tax to total price



                       Sri Lanka                                  37%

                       Thailand                                             24%

                       Pakistan                                              30%

                       India                                        51%


                       Sri Lanka                                  20%

                       Thailand                                             15%

                            Pakistan                                              15%

                            India                                        30%


But the most revealing fact is that on the basis of the information available from Energy Information Administration (EIA) there are 54 developing countries other than India having refining capacity in excess of their consumption.  But only Croatia, Philippines and South Africa have gone in for import parity pricing, while retail selling prices in Malaysia and Turkey are determined by international market prices.


Why then, India which is self sufficient in oil refining, but where more than 40 per cent are living below poverty line should go for deregulation to suit the global market prices of petroleum products?  Without a global wage, how can the global price of essential commodities be imposed on inflation hit people of India who do not have requisite purchasing power?





In the ministry’s advertisement, it says, “Even after the price increase, government will bear a burden of Rs 53,000 crores during the year.”


The ministry probably forgot that in their presentation on Demands for Grants (2010-2011) before a parliamentary committee, it said “Ministry of Finance has confirmed a budgetary support of Rs 12,000 crores as the share of the government towards meeting the under recoveries for the year 2009-2010”. Incidentally, during the same period contribution to central government exchequer by the petroleum sector in the form of taxes, duties, dividend etc. is more than Rs 90,000 crores. During the year 2010-2011, after the increase in taxes, the same is going to be more than Rs 1,20,000 crores. Who is subsidising whom? And then where is this figure of Rs 53,000 crores in the budget? Where from this figure has been invented? Is it also a case of globalised arithmetic like under recovery which does not find a place in budget or balance sheet?





We should thank Deora who in his interview makes the actual agenda clear behind the sound and fury of international price, under recovery and bankrupt public sector oil companies etc.  The cat is out of the bag when he says:


“A free-market regime will create competition between the public and private sectors.  This will improve service and could also lead to a price war.” 


In a price war, the public sector OMCs for whom Deora and the government are shedding crocodile tears today, will be the biggest losers. M/s Reliance and Essar have modern high capacity refineries compared to the public sector OMCS who have not been allowed to expand and to upgrade the technology to the level of these private refiners. Moreover, the private corporates have direct access to the highest policy makers to change policies like tax exemptions, tax concessions etc.  After all, the Ambanies and Ruias can meet the prime minister, finance minister, petroleum minister as and when they like while the public sector CMD’s access is limited to the joint secretaries  or secretaries. Backed by the corporate media, the private domestic corporates today and foreign multinationals tomorrow will rule the petroleum sector. This happens when the government becomes a government for the corporates, of the corporates and by the corporates.